Correlation Between Plains All and Cheniere Energy

Can any of the company-specific risk be diversified away by investing in both Plains All and Cheniere Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Plains All and Cheniere Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Plains All American and Cheniere Energy, you can compare the effects of market volatilities on Plains All and Cheniere Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Plains All with a short position of Cheniere Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Plains All and Cheniere Energy.

Diversification Opportunities for Plains All and Cheniere Energy

0.49

Correlation Coefficient

Plains All  Cheniere Energy

Very weak diversification

The 3 months correlation between Plains and Cheniere is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Plains All American and Cheniere Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheniere Energy and Plains All is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Plains All American are associated (or correlated) with Cheniere Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheniere Energy has no effect on the direction of Plains All i.e., Plains All and Cheniere Energy go up and down completely randomly.

Pair Corralation between Plains All and Cheniere Energy

Considering the 90-day investment horizon Plains All is expected to generate 2.58 times less return on investment than Cheniere Energy. But when comparing it to its historical volatility, Plains All American is 1.11 times less risky than Cheniere Energy. It trades about 0.1 of its potential returns per unit of risk. Cheniere Energy is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  18,243  in Cheniere Energy on September 3, 2024 and sell it today you would earn a total of  4,158  from holding Cheniere Energy or generate 22.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Plains All American  vs.  Cheniere Energy

Plains All American

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plains All American are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Plains All may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cheniere Energy

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Cheniere Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Plains All and Cheniere Energy

The main advantage of trading using opposite Plains All and Cheniere Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Plains All position performs unexpectedly, Cheniere Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Cheniere Energy will offset losses from the drop in Cheniere Energy's long position.

The idea behind Plains All American and Cheniere Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.